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Our multi-asset investment views - September 2023

We've downgraded our view on credit to neutral and remain neutral on equities. Find out more about our views on a range of asset classes here.

03/10/2023
Multi-asset views - September 2023

Authors

Multi-Asset Investments

🟢 Long / positive

🟡 Neutral

🔴 Short / negative

🔼 Up from last month

🔽 Down from last month

Main Asset Classes

🟡 Equities

We remain neutral on equities. Although we believe there may be short-term opportunities for value, this is counteracted by negative medium-term indicators.

🟢 Government bonds

We maintain our positive view on government bonds, as interest rates should be close to peaking, and some central banks are pausing rate hikes.

🟢 Commodities

We have kept our positive outlook on commodities as we expect prices to rise, particularly in energy as Saudi Arabia and Russia have cut oil production.

🟡🔽 Credit

We have downgraded our view on credit to neutral as although valuations in the US have deteriorated, regions such as Europe continue to offer some value.

Equities



🟡 US

Resilience in earnings means expectations have risen and allowed US equity prices to trade in a higher range. However, as inflation remains high, and the economy is expected to slow over the medium term, we remain neutral.

🟡 UK

UK equities have lagged other markets meaning valuations are now relatively attractive. However, concerns around stagflation lead us to remain neutral.

🔴 Europe

We remain negative on European equities, partly because of weak economic data coming out of Germany, as well as general weakness in the services and manufacturing sectors.


🟢 Japan

We remain positive on Japanese equities, as better fundamentals and a less restrictive monetary policy provide an opportunity for the market to outperform other regions.

🟡 Global Emerging Markets1

Emerging markets are often positively correlated with oil prices, which are currently rising. But as supply constraints will likely affect countries that are net importers of energy, we remain neutral.


🟡 Asia ex-Japan, China

Although we believe the market is too pessimistic on China, recent trade data has been worse than expected meaning we remain neutral.

🟡 EM Asia ex China

Despite slightly stronger global manufacturing data, we remain cautious, and therefore neutral.

Government bonds


🟢 US

We have remained positive on US Government bonds as we believe the Fed is approaching the end of its hiking cycle.

🟡🔼 UK
Although the Gilt market is expected to be more vulnerable than other developed market bonds in the medium term, the recent unexpected fall in inflation means, for now, we have upgraded our negative view to neutral.

🟡🔽 Germany

We downgrade to neutral, as despite hints from the European Central Bank (ECB) that it may pause in hiking rates, we don’t believe German bunds will outperform other markets.

🟡 Japan

Although we expect the Bank of Japan (BoJ) to change its policy away from negative interest rates we remain neutral until any change in policy is announced.

🟢 US inflation linked bonds

We remain positive because further falls in inflation require a weaker labour market, which US employment and wage data is not yet signalling.

🟡🔽 Emerging markets local currency bonds

Although emerging market central banks are ahead in their hiking cycle, and inflation is falling, we have downgraded to neutral due to currency risks relative to the US dollar.

 

Investment grade credit

🟡 US

We remain neutral as although relative to cash rates, yields look unattractive, corporate fundamentals remain strong.

🟢 Europe

We have retained our preference for European investment grade bonds as they should benefit from any stability in yields.

🟡 Emerging markets USD

Valuations are stretched, and although fundamentals remain resilient, these markets are influenced by Chinese growth and the global commodity cycle, hence we remain neutral.

High yield bonds (non-investment grade)

🟡 US

Limited issuance and a contracting market are supporting spreads. However, the increased dispersion² is creating a headwind for any significant tightening of spreads in the future.

🟡 Europe

Whilst European valuations are more attractive than the US, European HY is starting to catch up with US HY in terms of defaults, albeit from a very low base.

 

Commodities

🟢 Energy

Despite higher moves in energy prices, we have remained positive. Although OPEC+ have persisted with their aggressive stance by cutting production, demand has remained firm and the impact of “shadow market supply” has reduced.

🟡 Gold

We remain neutral as we prefer to hold a variety of commodities in the current climate.

🟡 Industrial metals

While the supply side for metals remains very tight, we remain unclear as to where an increase in demand would come from, and so remain neutral.


🟢 Agriculture

Whilst crop conditions have improved in the US, the potential supply constraints from El Niño in the Southern Hemisphere leads us to believe that the balance of risks will keep prices supported. We therefore remain positive.

Currencies

🟡 US $

Although the dollar is vulnerable to unexpected inflation data it still serves as a valuable portfolio diversifier due to its low correlation with equities.


🟡 UK £

The poor economic outlook and high levels of inflation continue to pose challenges for sterling, but with high levels of carry we remain neutral.

 
🔴🔽 EU €

We have downgraded the euro to negative as it faces headwinds from weak growth, high inflation and record high interest rates negatively impacting European companies.

🟡 CNH ¥

We maintain a neutral stance due to trade cycle dynamics and the lack of attractive carry.

🟡 JPY ¥

While the recent policy tightening by the BoJ removed downward pressure, it is unlikely that the yen will appreciate in the near future.


🟡 Swiss franc ₣

We maintain our neutral stance as growth in Switzerland is slowing down. However, the Swiss franc's safe haven status continues to be attractive to investors.

 

1 Global Emerging Markets includes Central and Eastern Europe, Latin America, and Asia. 2 Proportion of face value in index marked outside +/-100bps of overall index leve

 Source: Schroders, September 2023. The views for equities, government bonds and commodities are based on return relative to cash in local currency. The views for corporate bonds and high yield are based on credit spreads (i.e., duration-hedged). The views for currencies are relative to the US dollar, apart from the US dollar which is relative to a trade-weighted basket.

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Schroders (Bermuda) Limited is an indirect wholly-owned subsidiary of Schroders plc and is licensed to conduct Investment Business by the Bermuda Monetary Authority.

For illustrative purposes only and does not constitute a recommendation to invest in the above-mentioned security / sector / country.